Society for Worldwide Interbank Financial Telecommunication (SWIFT)

Why in news?

• As tensions exacerbate between Washington and Moscow over Ukraine, political commentators say that the United States could, as a last resort, exclude Russia from the Society for Worldwide Interbank Financial Telecommunication (SWIFT).

About SWIFT:

• It is a messaging network that financial institutions use to securely transmit information and instructions through a standardized system of codes.
• Under SWIFT, each financial organization has a unique code which is used to send and receive payments.
• SWIFT connects more than 11,000 banking and securities organizations in over 200 countries and territories.

What SWIFT Do?

• SWIFT does not facilitate funds transfer rather, it sends payment orders, which must be settled by correspondent accounts that the institutions have with each other.
• The SWIFT is a secure financial message carrier — in other words, it transports messages from one bank to its intended bank recipient.
• Its core role is to provide a secure transmission channel so that Bank A knows that its message to Bank B goes to Bank B and no one else. Bank B, in turn, knows that Bank A, and no one other than Bank A, sent, read or altered the message en route. Banks, of course, need to have checks in place before actually sending messages.

How is it administered?

• It is regulated by G-10 central banks from Belgium, Canada, France, Germany, Italy, Japan, Netherlands, United Kingdom, United States, Switzerland, and Sweden, alongside the European Central Bank. Its lead overseer is the National Bank of Belgium.
• The SWIFT oversight forum was established in 2012. The G-10 participants were joined by the central banks of India, Australia, Russia, South Korea, Saudi Arabia, Singapore, South Africa, the Republic of Turkey, and the People’s Republic of China.

SWIFT India:

• SWIFT India is a joint venture of top Indian public and private sector banks and SWIFT (Society for Worldwide Interbank Financial Telecommunication).
• The company was created to deliver high quality domestic financial messaging services to the Indian financial community.

Significance of SWIFT:

• Messages sent by SWIFT’s customers are authenticated using its specialised security and identification technology.
• Encryption is added as the messages leave the customer environment and enter the SWIFT Environment.
• Messages remain in the protected SWIFT environment, subject to all its confidentiality and integrity commitments, throughout the transmission process while they are transmitted to the operating centres (OPCs) where they are processed — until they are safely delivered to the receiver.

PRACTICE QUESTION:

With reference to ‘Society for Worldwide Interbank Financial Telecommunication’ (SWIFT), consider the following statements:

1. It is a messaging network that financial institutions use to securely transmit information and instructions

2. Reserve Bank of India is a participant in the SWIFT

Which of the statements given above is/are correct?

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

Answer